Disruptive pricing is certainly a theme that we've seen on the consumer side fairly consistently since Netscape used "free" as a weapon to proliferate its browser. In fact, "initially free" has seemed to have become the de riguer pricing strategy on the consumer side.

Within the enterprise software world, however, the aggressive use of pricing as a weapon has been somewhat muted. While there are certainly examples, including open source and hosted applications sold on a low monthly cost subscription basis (aka Salesforce.com), widespread disruptive pricing is not a big industry theme. We've often contemplated how pricing will begin to play a more prominent role within the enterprise software sector. We suspect that we will see a day, not too far in the future, where disruptive pricing will become a more prominent strategy.

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I am a member of one of the three largest software development organizations in the world. We build and maintain more software than all but the very largest commercial software developers, and we don't sell a nickel's worth of it.

Needless to say, we have the resources to deal with maintaining open-source software. Despite what Bill Gates and his crew of robber barons would have you believe about TCO, at least in the server software market, he's already lost us. When even a client our size can't get a vendor to react to a request for a feature change or a bug fix without paying through the nose for customization or upgrades, their dire warnings about the cost of maintaining "free" software brings nothing but belly-laughs. When we have the source, we can fix it ourselves - which means, more than anything else, that it actually gets fixed. We also don't upgrade unless and until it suits our needs for new features or performance, not when it suits their need for more revenue.

Basic economics has always said that where real competition exists, the cost of goods is driven toward their unit cost. The unit cost of software in a globally-networked world is vanishingly close to zero, so no business model makes any sense except the same kind of shared development that has served the scientific community so well for centuries now.

This is not a comment on whether this is good or bad, right or wrong, and I am certainly not a socialist. But price in the digital content world is increasingly being supported by more complex and less practical schemes designed to maintain an artificial scarcity - schemes which serve only the suppliers and not the consumers. Further, they irritate and punish honest customers, while doing little or nothing to prevent illegal copying - remember, an anti-copying scheme only has to be broken once. This puts suppliers in such a bad light that many who would not otherwise have considered infringement begin to feel justified, and soon "everyone else is doing it" builds peer pressure. Frankly, I believe that today nothing but the fear of audits keeps most corporate users from using illegally-copied software.

In such a world, "disruptive pricing" is not so much a novel strategy as a recognition that the dam of artificial price supports is about to give way under the pressure, and positioning oneself to survive (and hopefully benefit from) the flood. The smartest way to do this is to chip away at the weakest point you can find, at the bottom of the dam, after constructing a pipe to carry away the leakage.

Eric, I help CIOs negotiate technology contracts. As you know, enterprise s/w is just so full of empty calories particularly SG&A of 3o to 50% and so full of margin in certain products that it is a miracle it has been sustained. As I wrote below, evolution is better than a revolution, but conditions are ripe for a disruptive revolution...

Basic economics has always said that where real competition exists, the cost of goods is driven toward their unit cost. The unit cost of software in a globally-networked world is vanishingly close to zero, so no business model makes any sense except the same kind of shared development that has served the scientific community so well for centuries now.